Sep 03, 2019 • 05:00 pm ET

Jon Kessler

on year-over-year measures of profitability and custodial asset growth atop robust revenue and HSA member growth. Revenues of $86.6 million, were up 22% year-over-year. Adjusted EBITDA of $40.6 million, rose an even a larger 28% year-over-year. HSA members at July 31 reached 4.2 million, up 16% year-over-year, Active HSA members climbed 13% to 3.3 million, and Custodial Assets reached $8.5 billion, growing at 21% year-over-year, which is more. Progress was evident in members learning to use HSA is for the long-term saving. Invested assets grew 38%, and the number of HSA members investing was up 31% compared to a year ago.

Underlying these key metrics, the team achieved several important milestones during the quarter. For the first time in HealthEquity's history, custodial fees accounted for more than half of total revenue, which is reducing our dependence on service fees paid by our clients. Also, for the first time, gross profits exceeded two-thirds of total revenue with gross profit margins of 67%, that's two-thirds, expanding by more than 190 basis points year-over-year. Adjusted EBITDA margins expanded by more than 200 basis points year-over-year to 47%, another record, even after expenses made for a larger platform investments as we discussed on our Q1 and prior to that, Q4 calls.

Turning to sales. The team opened up 126,000 new HSAs in the quarter, up 8% from last year's Q2 production. And custodial assets grew by $195 million. That's 15% more than a year-ago period, and it's despite essentially flat underlying equity markets during the quarter. These were really tough comps and the team beat them.

We attribute this outperformance really to three factors. The first is the roll out of upgraded HSA complementary offerings that employers want to buy from their HSA partner, the second is expansion of HealthEquity's distribution footprint as direct-to-employer selling expanded and our retirement plan partnerships really came online, and the third is the resilience of the underlying HSA market as trends driving the long-term shift to HSA-style health plans and greater use of HSAs remain in place.

Q2 also saw some notable regulatory developments that we expect to spur future growth. The IRS clarified and expanded the scope of HSA qualified plans to include plan designs with more coverage for chronic conditions. And bipartisan legislation introduced in the House would extend the benefits of HSAs to all Medicare recipients, which would significantly reduce out-of-pocket healthcare costs for seniors and especially those in traditional Medicare. So that seems like a good thing. In a way, Q2 previewed what we intend to achieve with the WageWorks acquisition, which is a more complete offering delivered across a wider distribution footprint, leading to outperformance over and above already-strong HSA market growth driven by long-term secular trends. That's a long equation, but it's working. We call it the new HealthEquity. And with WageWorks acquisition closing last Friday, today, as it turns out, is its second full day on the job, the new team, Purple, according to Devenir's just-published Midyear market report, begins as